Business context and reporting period
Schlumberger Limited (Schlumberger N.V.), a global oilfield technology and services provider, filed this Form 10-K for the fiscal year ended December 31, 2013. The filing also reports fourth-quarter results. Its three operating groups are Reservoir Characterization, Drilling, and Production.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $45.266 billion | $41.731 billion |
| Income from continuing operations attributable to Schlumberger | $6.801 billion | $5.230 billion |
| Diluted EPS from continuing operations | $5.10 | $3.91 |
| Net income attributable to Schlumberger | $6.732 billion | $5.490 billion |
| Net cash from operating activities | $9.788 billion | $6.543 billion |
| Capital expenditures | $3.943 billion | $4.694 billion |
| Net debt | $4.443 billion | $5.111 billion |
- Revenue increased 8%; international revenue rose 11%, while North America revenue increased 3%. Middle East & Asia led regional growth, up 23%.
- Oilfield Services pretax operating income rose 15% to $9.344 billion. Pretax operating margin was 20.6%, up 119 basis points; international margin improved to 22.2%, while North America declined to 19.7% amid pricing pressure.
- Revenue less cost of revenue was $9.935 billion, approximately 22.0% of revenue.
- Working capital was $12.700 billion. Year-end cash and short-term investments totaled $8.370 billion; committed debt facilities of $4.0 billion had $3.7 billion available and unused. Long-term debt was $10.393 billion.
- Operating cash flow less capital expenditures was approximately $5.8 billion, before multiclient seismic investment and other investing activity.
Fourth quarter
Revenue was $11.906 billion, up 3% sequentially and about 7% from fourth-quarter 2012. Net income attributable to Schlumberger was $1.664 billion and diluted EPS was $1.26; the quarter included a $122 million after-tax receivables provision. Product and software sales and multiclient seismic sales contributed to sequential growth. North American land pricing remained weak.
Material changes and unusual items
- Schlumberger recognized a $1.028 billion pretax gain on forming OneSubsea with Cameron, in which it retained a 40% interest; it also paid Cameron $600 million.
- Other 2013 charges included $364 million of equity-investment impairments, a $152 million provision for a Brazilian customer bankruptcy, and a $92 million Venezuelan currency devaluation loss. Together with the OneSubsea gain, these items produced a net pretax credit of $420 million and a net after-tax credit of $469 million.
- Iran operations were wound down in the second quarter and reported as discontinued operations. 2013 Iran revenue was $102 million, with a $69 million net loss. Prior periods were restated.
- Net debt decreased despite share repurchases of $2.596 billion and dividends paid of $1.608 billion. The 2013 dividend declared was $1.25 per share.
Outlook, management commentary, and risks
Management expected exploration and production spending to grow further in 2014, led by international activity and continued strength in the deepwater U.S. Gulf of Mexico, and described its outlook as positive. It forecast 2014 capital expenditures of approximately $3.8 billion and anticipated about $500 million of pension and other postretirement plan contributions, subject to conditions. In January 2014, the board raised the quarterly dividend 28% to $0.40 per share. The filing provides no specific 2014 revenue or EPS guidance.
- Results depend substantially on customers’ oil and gas spending, which can weaken with lower or volatile commodity prices. Pricing pressure and hydraulic horsepower oversupply affected North American land services.
- International operations represented about 73% of 2013 revenue, exposing the company to political, currency, sanctions, tax, and payment risks. Schlumberger disclosed an ongoing U.S. grand jury investigation and regulatory inquiry into historical operations in sanctioned countries; it could not estimate the outcome or impact.
- Venezuela’s announced dual exchange-rate system could affect 2014 results. Schlumberger reported approximately $330 million of net monetary assets in bolivares; applying an illustrative rate of 11.3 per U.S. dollar would result in an estimated $150 million charge.
- Other material exposures include environmental, health and safety, litigation, regulatory, severe-weather, technology, and skilled-personnel risks. Management said the probability of a material loss in other legal proceedings was remote; claims against M-I SWACO consolidated in the Deepwater Horizon litigation were dismissed in 2013.
- Auditors issued an unqualified opinion on the financial statements and internal control over financial reporting; management reported controls effective.
Important facts for investors to verify
- How much of the 2013 earnings increase reflects recurring operating performance versus the OneSubsea gain and other charges and credits.
- Collection and credit quality of receivables, particularly the Brazilian bankruptcy provision and payment exposure in Venezuela.
- Developments and potential financial consequences of the U.S. sanctions-related investigation.
- Whether the expected 2014 international spending growth materialized, and whether North American land pricing and margins stabilized.
- Debt maturities, planned buybacks and dividends, and the company’s ability to sustain investment while maintaining liquidity.